HomeIn-depthSvend Aage Kirk: The value of regulation in gambling

Svend Aage Kirk: The value of regulation in gambling

9 min. read
Svend Aage Kirk

There are any number of ways one could slice up the global gambling industry and rearrange it into categories.

In-person gambling is often separated from online gambling, for example, and sports betting is typically distinguished from casino games and even horse betting. Peer-to-peer products like poker aren’t very similar to blackjack or roulette at all, and lottery games tend to fall into a category of their own too.

There’s also a clear dichotomy between regulated gambling and its unregulated counterpart.

While there is a growing movement toward legalisation and regulation, the overwhelming majority of online gambling around the world is still being conducted in a manner that is either unregulated or outright illegal. Estimates on the size of the global illegal gambling market are eye-popping, reaching well into the trillions of dollars annually.

But what’s the difference between regulated and unregulated gambling? Does it even matter? Let’s talk about what good gambling regulation looks like and why it should be a real consideration for players.

The nuts and bolts of gambling regulation

At its core, regulation is simply about oversight and accountability.

Policymakers establish a set of rules to govern a given industry (like gambling), and law enforcement creates a mechanism to punish those who fail to follow them. Broadly speaking, society has decided that vices like alcohol, drugs, and indeed gambling should be regulated in some capacity. Businesses that offer these products require external oversight.

At the operational level, gambling regulations help ensure that the games themselves are being conducted fairly and in a way that complies with the law. This includes verifying the randomness of dice rolls and deck shuffles, for example, and ensuring that poker hole-card information is properly encrypted and sequestered. Given the complexity of these systems, such verification is typically conducted via a reputable third-party testing organisation like Gaming Labs International.

Financial oversight is a large component of regulation too. Gambling has long been a favourite outlet for money laundering and other financial crimes, and regulators work tirelessly to root these issues out of the legal environment. Customers should be able to patronise a business without worrying that their funds might disappear, or that they might be used to support a criminal enterprise.

Gambling regulations also feature common-sense restrictions on operator conduct, including rules around advertising and bonusing which can vary from one jurisdiction to another. More importantly, KYC requirements ensure operators are only taking bets from adult customers with a verifiable identity.

Putting the "protection" in consumer protection

The simple promise of revenue is what drives the legalised gambling apparatus, but these regulatory touchpoints all serve a more noble purpose: to protect consumers.

The relevance of the game-fairness elements of regulation is obvious. Customers themselves don’t possess the tools to determine whether the computer algorithm that just gave the dealer blackjack against their 20 is fair. There’s no way to know if someone at your online poker table might be a superuser who can see your pocket aces as if they were turned face-up.

If your gambling website doesn’t have certified encryption and randomness, how can you even trust the results? And how confident are you that you’ll be able to collect your winnings?

The history of offshore sports betting, for instance, is littered with the names of unregulated sportsbooks that have shuttered their product and absconded with their customers’ money in the proverbial dead of night. The same can be said of poker. A US-led crackdown on offshore poker websites in 2011, for example, revealed that executives were using more than a billion dollars of unsegregated customer funds as their personal piggy bank.

This form of root-level fraudulence doesn’t happen with proper oversight in place.

Regulation also provides a layer of legal protection for customers who do fall victim to operator impropriety, giving them actual recourse that is not present in the unregulated marketplace. Perhaps it’s a dispute about the result of a prop bet or a cashiering issue that makes funds go missing. Transactions that flow through the offshore gambling economy are often completely unprotected in a legal sense.

These protections might seem like simple quality control – and they are – but they create a compelling case for choosing regulated gambling websites over unregulated ones. Such basic rules are fundamental to creating a safer gambling environment, and they are only enforced through regulation.

A regulatory shield for the most vulnerable

While regulations are built to protect every consumer, they’re especially relevant to the most vulnerable segment of the population. For gambling, this includes younger people, older people, the mentally unwell, and all those who otherwise have difficulty controlling their financial behaviour.

Gambling operators are, generally speaking, incentivized to maximise the amount of money their customers lose. And they’ve become awfully good at it, considering the losses their customers bear correlate directly to their own financial gain.

Over-advertising and over-bonusing subject high-risk customers to a level of temptation that they may not have the ability to resist on their own. Everyone understands that advertisements and other forms of marketing are subliminally powerful, but that dynamic is especially intense in the realm of gambling.

Unregulated gambling websites often fail to protect their most vulnerable customers, and many of them even go so far as to actively capitalise on their lack of control and their willingness to overextend their finances. Left unchecked, gambling sites will prey on the weak with an endless barrage of clever advertisements and enticing promotions. One needs to look no further than to scan the internet for sites that cater specifically to disordered gamblers who are restricted from regulated play.

Put simply, gambling operators will take advantage of their customers to the extent they’re legally allowed.

Even the best efforts can’t prevent every instance of gambling-related harm, however, and some customers will experience negative effects. It is with this understanding that regulated gambling industries often include an allocation of funds to support treatment for those who will inevitably be harmed.

You may not even realise that this form of regulation is relevant to you on a personal level, but such a support system is fundamental to mitigating the long-term societal impacts of expanded gambling. There’s a real element of public health to consider.

Weighing the benefits of regulation in gambling

There is a growing library of research into the inherently harmful nature of gambling, and there is an ever-increasing amount of tangible evidence to support it. You don’t have to search very hard to find stories from major news outlets all over the world about lives that have been destroyed by gambling.

That’s not to say that gambling is inherently bad, but it is risky by its very definition.

Regulated gambling isn’t completely safe, of course, but it is inherently safer than its unregulated counterpart. Customers in the regulated environment know that their funds are safe and the games are fair, just as if they were sitting at a casino holding the cards and the chips in their own hands. And they have real legal recourse in the event they feel mistreated or cheated by a licensed operator.

We didn’t even touch on match-fixing either, a crime tied to sports betting that is almost exclusive to the grey/black market. Given the fundamentally transparent nature of regulated gambling, only the most foolish of match-fixers would ever try to capitalise on their crime via a regulated sportsbook. There are simply too many eyes on the ball.

Choosing a gambling website to patronise really comes down to your personal preferences and your own internal moralities, but it’s certainly worth considering the many benefits of regulation and, conversely, the many hidden perils of unregulated gambling.

Third-party solutions streamlining oversight and compliance

Gambling operators rely on a number of third-party services to power their products, often outsourcing duties like KYC and payment to specialists in those areas. Geolocation, as another example, is seldom conducted in-house.

Regulatory compliance is another area in which stakeholders often need an assist. OYoung operators and specifically those who serve multiple jurisdictions sometimes struggle to meet the long list of individualised requirements, and regulators sometimes find it difficult to implement the most current best practices into their local product. The regulatory machine moves slowly, and some of the agencies charged with oversight simply don’t possess the tools and the experience required to effectively manage a modernised product like online gambling.

Companies like SG:certified can help bridge that gap. SG:certified provides personalised consultation services centred around their proprietary compliance dashboard that allows for direct collaboration and communication between operators and regulators. Bringing stakeholders closer together in a shared workspace helps lighten the compliance workload for everyone involved while creating a stronger foundation of global best practices that truly protect local customers.

If you’re a gambling regulator or operator with a desire to make the industry safer and more sustainable, you can schedule a free demonstration with the SG:certified team: www.sgcertified.com

Image credit: Casino Guru News

29 Aug 2023
9 min. read
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